Analysis of the Retail Trade and Automotive Industry in the Russian Federation
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CENTRAL EUROPEAN BUSINESS REVIEW VOLUME 2, NUMBER 3, SEPTEMBER 2013 RESEARCH PAPERS ANALYSIS OF THE RETAIL TRADE AND AUTOMOTIVE INDUSTRY IN THE RUSSIAN FEDERATION Bolotov, I. The article examines recent developments in the Russian retail trade and automobile industry as two very dynamic sectors of the Russian economy by stating and forecasting sales trends, presenting the main market participants, shares of business forms and deducing perspectives for Central and Eastern European investors. The article uses a standard methodology for description of industries and econometric models for sales forecasts and analysis. The article’s main benefi t for Central and Eastern European managers is its concise and up-to-date description of the both sectors of the Russian economy, which is not easily accessible for foreigners due to language barriers and marketing agency fees. JEL classifi cation: L62, L81, M31, O52 Keywords: Russian market; retail trade; automotive industry; perspectives; forecasts. Introduction Methods In view of the growing concentration of Central Euro- The article is based on a standard model of industry pean markets, many companies (for example, in the description, used e.g. in (Machek 2012), consisting of Czech Republic) seek to diversify their activities, espe- stating and analyzing 1) sales development, 2) top market cially, towards Eastern Europe and Asia. The Russian participants, their origin and concentration and 3) specif- Federation (RF) offers many possibilities to Central and ics and perspectives of the market. Econometric tools Eastern European businesses due to its big size (a market for time series analysis, used where possible, include of more than 140 million potential customers), cultural one-dimensional time series ARIMA(p,q,r) model, and closeness to Central Europe (Slavonic origin of the major- multi-dimensional co-integration regression model, ity of population, common socialist past etc.), knowl- based on (Engel and Granger, 1987) methodology. The edge of the Russian language among Central Europeans, principle source of data is the Russian statistical offi ce positive image of Central and Eastern European goods (Rosstat) and studies of the ‘Big Four’ (KPMG, PwC, and services among Russian customers and many other EY and Deloitte). Preliminary research on the topic was strengths. An important question for many investors, presented in Bolotov (2013). nevertheless, remains the choice of industry. This article aims to help resolve this problem by analyzing the 1. Industry Composition of the Russian Federation development of two very dynamic Russian industries, To justify the choice of the two industries, it is neces- retail trade and the automotive sector, by answering the sary to examine the industry composition of the Russian following research question “What are the main specifi cs economy. From Appendix 1, it is perceivable that accord- of Russian industries?” and by testing one hypothesis: ing to the OKVED classifi cation, its main sectors were, H1: Retail trade and automobile industry sales show in 2012, wholesale and retail trade (ca. 20 %), manu- a promising perspective in the decade 2010–2020. facturing industries (ca. 15 %), real estate activities (ca. 7 CENTRAL EUROPEAN BUSINESS REVIEW RESEARCH PAPERS VOLUME 2, NUMBER 3, SEPTEMBER 2013 12 %) and mining and quarrying (ca. 11 %). Compared marked by relatively constant fi gures (similar to Central to the pre-1991 (socialist) period, when manufacturing and Eastern European countries), transition by stagnation dominated the economy and there was a lack in choice and fall, and the 2000s by rapid growth of ca. 22 % per of consumer goods, it is not diffi cult to deduce that B2C year, which dropped to 4.7 % in the crisis year of 2009 but retail trade and automotive industry should be nowadays recovered to 13 % and 15.7 % in 2010 and 2011, attaining of importance in the RF. Moreover, due to a historical ca. 19,082,577.6 million RUB (457,929.8 million EUR) development different from that in Central Europe, both in 2011. Forecasts (with the help of ARIMA(1, 0, 1) retail trade and the automotive industry in the RF show model), based on monthly data, 2000–2012, also point to certain specifi cs. continuous growth and an increase of more than 50 % by 2020 (see Figure 1), which makes the industry lucrative 2. Retail trade in the Russian Federation for foreign, among other, Central and Eastern European, Machek (2012), based on Dries, Reardon and Swinnen investors in the long run. (2004), defi nes three stages in the retail trade devel- This growth is, however, not primarily caused by inten- opment in Central and Eastern Europe: pre-transition sifying globalization (growing presence of multinational (communist / socialist, before 1989/1991), transition players, which is much lower in Russia, compared with (‘small privatization’, fi rst half of the 1990s) and global- Central and Eastern Europe), but by improvements in ization period (second half of the 1990s and nowa- the living standard of the population. The degree of the days). The retail trade development in the RF does not, so-called ‘Wall-Mart effect’ (Igan and Suzuki, 2012), however, exactly fi t this scheme. declining prices due to concentration in the retail trade, is also lower, which can be econometrically proven for 2.1 Dependence on the Economic Policy of the the Russian retail industry on monthly data, 2000–2012, Government with the help of the following (co-integration regression) Retail trade turnover in the RF has been growing at model: a relatively stable pace for 40 years, with exception of the transition period (1986–1994). Socialist times were CPIt = b0 + b1 x TRt + et Figure 1: Recent development and long-term forecasts of retail trade turnover in the RF, million RUB Source: Author, Rosstat data. 8 CENTRAL EUROPEAN BUSINESS REVIEW RESEARCH PAPERS VOLUME 2, NUMBER 3, SEPTEMBER 2013 Figure 2: Sales in the retail industry by main product groups and company types, million RUB Source: Author, Rosstat data. where CPIt and TRt are consumer price index and b1 = −5.74648e-07 (1.51574e-07)) with a quality of the 2 retail turnover, and b0, b1 and et are the two parame- model (R ) of ca. 38.9945 %, which is below 50 %, and ters and errors. According to unit root (Augmented with an unclear causality (according to the so-called ದ Dickey-Fuller, ADF) tests, there is a long-term rela- Granger causality test, there is a both-way dependence tionship between CPIt and TRt at the 10 % signifi - between turnover and price level). This questions the cance level (after correction for autocorrelation by the signifi cance of the ‘Wall-Mart effect’ in the RF in the Cochrane-Orcutt method, b0 = 101.405 (0.155708) and last 12 years. Table 1: Top eight companies in the Russian retail industry in 2010 Turnover, Number Present in FD No. Brands Focus billion RUB of shops, (Federal Districts) after VAT end 2010 X5 Retail Group Карусель, Пятерочка, Central, North-western, 1 Food 396.22 2469 (No. 2 in 2013) Перекресток, Копейка Southern, Urals, Volga FDs Food, Central, Southern, Ашан, Ашан-Сити, 2 Auchan Group household 256.16 111 Northwestern, Volga, Радуга, Атак, Леруа goods Siberian, Urals FDs Repairs, Мерлен, Декатлон sport Food, Southern, Central, Urals, Magnit Магнит, household North-western, Volga, 3 236.19 4055 (No. 1in 2013) Магнит-Косметик goods, North Caucasian, Siberian cosmetics FDs Метро Кэш энд Кэрри, Food, Northwestern, Central, 4 Metro Group Реал, Медиа Маркт, household 170.26 104 Siberian, Southern, Urals, Сатурн goods Volga FDs Household 5 M.Video М.Видео 86.39 230 all FDs goods Northwestern, Southern, 6 O’Kay О`Кей, О`Кей-экспресс Food 82.67 57 Central, Siberian, Volga, North Caucasian FDs Eldorado (is now Household 7 100 % owned by the Эльдорадо 80.00 331 all FDs goods Czech PPF group) Siberian, North-western, 8 Lenta Лента Food 70.60 39 Southern, Volga, Urals FDs Source: Kommersant.ru and InfoLine, the Retailer Magazine, 2010. 9 CENTRAL EUROPEAN BUSINESS REVIEW RESEARCH PAPERS VOLUME 2, NUMBER 3, SEPTEMBER 2013 2.2 Market Structure – Forms The only foreign companies are German Metro, French The rapid growth of retail trade turnover in the RF in Auchan and Czech PPF Group, with a share of 36.5 % 2000s concerns equally food and non-food products and in the Top 8 (which is a very low fi gure for Central and is marked by a decrease in the share of traditional street Eastern Europe). The share of Top 8 in total retail trade vendors and fairs; see Figure 2. GfK (2007, the last major turnover was ca. 7.27 % in 2010. To compare, the Top 10 study on Russian retail forms) published the following in the Czech Republic constituted 76.5 %, in Hungary statistics on forms of retail trade in the RF: hypermarkets 65.4 % and in Poland 57.9 % (Drtina, 2010). The Russian (3.4 %), supermarkets (9.3 %), discounts (9.3 %), Cash retail market, therefore, remains less saturated and open & Carry (0.8 %), small grocery shops (32.9 %), tradi- for foreign companies (however, as often indicated in the tional street markets and fairs (18.4 %), others (26 %). daily press, concentration is slowly strengthening over To compare, the fi rst three mentioned forms constituted time). ca. 60 % in Central European countries (GfK, 2012). Hypermarkets and supermarkets, nevertheless, remained 3. Automotive Industry in the Russian Federation the most dynamic forms of retail business in the Russian Offi cial Russian statistics distinguish between four market in 2012–2013, according to surveys (Ernst and types of vehicles: passenger vehicles (B2C / car), light Young, 2011). commercial vehicles, trucks and buses. In this article, the attention is focused on the biggest of the segments, the 2.3 Market Structure – Biggest Companies B2C market, and its development, see Figure. 3. A list of the eight (data for TOP10 was not available at the time of elaboration of this article) biggest compa- 3.1 Volatility, Perspectives and Main Problems nies in the Russian retail industry in 2010 is presented The Russian Ministry of Industry and Trade’s (Min- in Table 1.